The term ‘immediate post death interest’ (IPDI) refers to a type of beneficial interest in a trust, for which the Inheritance Tax treatment is aligned to that of an individual instead of the separate regime for trusts.
First, an IPDI is an ‘interest in possession’ which means that the beneficiary has a right to the income arising from the trust assets or a right to occupy or enjoy the trust assets. There is no right to absolute ownership. Secondly, the IPDI is an interest which arises on the death of the individual who provides the trust assets. Typically, the trust is written into a Will and it takes effect when the testator dies. Provided the terms of the trust include these two essential features of ‘an interest in possession’ and ‘taking effect immediately on death’, the interest qualifies as an IPDI and is included in the category of ‘qualifying interests in possession’ (QIIP) for inheritance tax purposes.
The Inheritance Tax treatment of QIIPs (and therefore IPDIs) is to treat the trust assets as part of the beneficiary’s estate. On the death of the beneficiary, inheritance tax will be calculated on the combined value of the personal assets and the trust assets. The burden of tax is then shared between the personal estate and the trust in proportion to their respective values. If the beneficiary’s interest ends on an occasion other than death, the transfer or termination of the interest is treated in the same way as a personal gift. Such a ‘gift’ could be exempt, potentially exempt, or chargeable, depending on the recipient. This treatment of QIIPs differs from that applied to other trusts in that no inheritance tax charges are borne by the trust assets whilst the interest prevails. By contrast, most other trust interests fall within the relevant property regime which imposes an inheritance tax charge every ten years during the life of the trust and when assets leave the trust.